SOAH DOCKET NO BEFORE THE STATE OFFICE TEXAS ALCOHOLIC BEVERAGE COMMISSION, Petitioner

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1 SOAH DOCKET NO TEXAS ALCOHOLIC BEVERAGE COMMISSION, v. Petitioner DANMARKO, INC. D/B/A SACCONE'S PIZZA & SUBS TABC NO AND DANMARKO, INC. D/B/A SACCONE'S PIZZA & SUBS TABC NO BEFORE THE STATE OFFICE OF ADMINISTRATIVE HEARINGS PROPOSAL FOR DECISION The Staffofthe Texas Alcoholic Beverage Commission (TABC or Commission) protested the renewal application filed by Danmarko. Inc., d/b/a Saccone's Pizza & Subs (Respondent) alleging violations in three primary areas: (1) the display ofharmful materials on the premises to a minor female employee by Daniel Saccone, Respondent's sole shareholder, officer, and director, and related conduct by a male employee; 1 (2) a subterfuge relationship in which Daniel Saccone attempted to conceal the true person responsible for the business; and (3) failure to provide Staff with properly requested information. Based on the evidence regardingthe display ofharmful materials and Respondent's failure to respond to Staffs inquiries, the Administrative Law Judge (ALJ) finds that Respondent's permits should not be renewed. However, the ALJ does notfind that subterfuge evidence provides a basis for sanctions. 1 Staff also alleged that Daniel Saccone and his employee sexually harassed or abused the minor and abused her civil rights. However, there was insufficient or no evidence to support these allegations, and they are not discussed further in this Proposal for Decision.

2 SOAH DOCKET :" PROPOSAL FOR DECISIO'I PAGE2 I. JURISDICTION, NOTICE, AJ'Ii"D PROCEDUR~L HISTORY Respondent holds PermitBG for its location at ResearchBoulevard, Austin, Williamson County, Texas, and Permit BG for its location at 2701 Highway 183 South, Suite A, Leander, Texas. 2 After Staffprotested the renewal ofthese permits, Respondent requested a contested case hearing. The hearing was convened by ALI Sarah G. Ramos at the State Office ofadministrative Hearings, 300 W. Fifteenth Street, Austin. Texas, on October 16, Daniel Saccone appeared prose, and Commission staff attorney Michael E. Cady represented the Staff. Because the hearing was not completed that day, it was reconvened for the receipt of additional evidence on November 13, 2006, and on that date, attorney Felix Rippy represented the Respondent. The record closed on December 1, 2006, after the parties had an opportunity to file v.ritten closing arguments. Notice andjurisdiction are addressed more completely in the Findings offact and Conclusions oflaw. H. ALLEGATIONS REGARDING CONDUCT 0::'< THE PREMISES A. Evidence 1. Criminal Cases On December 4, 2005, Daniel Saccone pled guilty in the 26'h District Court. Williamson County, to Display of Harmful Materials to a Minor. The offense is a third-degree felony described in TEX. PENAL CODE Al'<'N (b)(3) 3 On January 13, 2005, after accepting lv!r. Saccone's guilty plea, the court deferred further proceedings without adjudicating his guilt and 2 Respondent has another restaurant location in Round Rock that does not have a TABC permit 3 That section defines a minor as an individual younger than 18 years and defines hannful materials as those "whose dominant theme taken as a whole: (A) appeals to the prurient interest ofa minor, in sex, nudity, or excretion; (B) is patently offensive to prevailing standards in the adult community as a whole \vith respect to \Vhat is suitable for minors; and (C) is utterly \\'ithout redeeming social value for minors."

3 SOAH DOCKET NO PROPOSAL FOR DECISIOl\" PAGE3 placed Mr. Saccone on community supervision for five years, ordered him to pay a $5,000 fine, and ordered him to perform 350 hours of community service. Mr. Saccone's plea and the deferred adjudication arose out ofan incident on July 27,2002, during which Mr. Saccone, while on the licensed premises, displayed pornographic images that were on Respondent's computers to a minor employee. Respondent's sole shareholder, director. and officer. At that time, Mr. Saccone was In addition, on May 11, 2005, Michael Cody, who was a manager at Respondent's Research Boulevard location, was charged with the same crime as that to which Mr. Saccone pled guilty. On June 23, 2005, in the 26'h District Court, Williamson County, Mr. Cody pled guilty to the lesser offense ofcommitting a criminal attempt on the licensed premises on July The crime with which Mr. Cody was charged is a state jail felony, described in TEX. PENAL CODEANOJ Based upon.\1r. Cody's plea, the court deferred further proceedings without an adjudication ofguilt, placed Mr. Cody on community supervision for three years, and ordered him to pay a $2,000 fine and perform 350 hours of community service. Respondent continues to employ Mr. Cody as a manager ofits business. 2. Officer Robby Gadeaux Austin Police Department (APD) Officer Gadeaux testified that he assisted the \Villiamson CountyDistrict Attorney's office byremoving computers from Respondent's premises and creating segmented, encased, mirrored, bit-for-bit copies ofthe hard drives. In reviewing the images on the computers, he found many images that were pomographic. 5 4 A person commits the offense ofcr:imjnal attempt if, v..,-ith specific intent to commit an offense, he does an act amounting to more than mere preparation that tends but fails to effect the commission of the otiense intended. An criminal offense attempt is one category lower than the offense attempted. 5 The images v./ere offered under seal for the ALJ's in camera inspection. The Cit;' ofaustin, custodian ofthe images, moved to quash the release ofany images that depicted minors. The ALJ viewed a representative sampling of the many images and selected three that appeared to depict adults. They were admitted as Ex. 16.

4 SOAH DOCKET NO PROPOSAL FOR DECISIO:"i PAGE4 3. TABC Investigator Bruce Boardman Investigator Boardman, a certified police officer, testified that Staffwas concemed about renewing Respondent's permits because ofdaniel Saccone's guilty plea and deferred adjudication for a crime involving his minor employee. Mr. Saccone will be on community supervision until the year 2010, Investigator Boardman noted. And Respondent's continued employment of Michael Cody indicates to Investigator Boardman that the company condones his conduct. Staffmust determine whether a person is morally capable ofholding a permit, Investigator Boardman added. He served with the APD for more thar1 29 years and has extensive training and experience in profiling sexual predators. Based on the computer images Daniel Saccone had on the computers, Investigator Boardman opined that Daniel Saccone was likely to re-offend. 4. Daniel Saccone Daniel Saccone asserted that neither his deferred adjudication nor that ofmr. Cody shonld prevent Respondent from receiving a license because the men have not been convicted of any crime. The judge presiding over his and Mr. Cody's criminal cases has allowed them to retain theirjobs withrespondent. To deny Respondent's renewal application would only hurt his father, Daniel Saccone testified. He relied on the change in Respondent's corporate structure to support his argument. On May 1, 2005, Daniel Saccone gifted 5,100 shares of the corporation's stock to his father, Phillip Saccone, Sr. (Philip Saccone), but Daniel Saccone retained the remaining 4,900 shares. Daniel Saccone resigned as director and officer, and Phillip Saccone became the director, president, and secretary ofthe company. Presently, Phillip Saccone employs his son to run the day-to-day operations, and Daniel Saccone testified that he does so under the advice ofhis father. \Vhenever he feels it necessary,

5 SOAR DOCKET :" PROPOSAL FOR DECISIOl\ PAGES Daniel Saccone goes to Respondent's licensed premises, and he can tell the store managers how to operate the stores. However, he does not go to the Round Rock location because he is limited by the terms of his community supervision as to how near a school he may be, and that location is within the distance limitation. 5. Phillip Saccone Phillip Saccone testified he has invested about $250,000 in Respondent business. The business takes in about $10,000 a year in alcoholic beverage sales. 6. Michael Cody Mr. Cody testified that he began working at Respondent's business in He left for a time but returned in He described his deferred adjudication and said the minor had worked at the Research Boulevardlocationfor three or four months before the incident occurred for which he was charged. B. Applicable Law TEX. i\lco. BEY. CODE ANN. (Code) (b)(7) authorizes the Commission to suspend or cancel a renewal pennit if the place or manner in which the permittee conducts his business w arrants cancellation or suspensionbased onthe general welfare, health, peace. morals, and safety ofthe people and on the public sense ofdecency. The term "permittee'' includes each officer and the owner or owners ofa majority ofthe corporate stock. Similarly, Code 61. 7!(a)(l1) prohibits a permittee from allowing a person on the licensed premises to engage in conduct which is lewd, immoral, or offensive to public decency. Finally, by rule, the Commission has determined that

6 SOAH DOCKET :'> PROPOSAL FOR DECISION PAGE6 deferred adjudication for a felony offense may indicate that an applicant is not qualified or suitable to hold a permit. 6 C. Analysis The.1\LJ agrees with Staff that Respondent's permits should not be renewed. Daniel Saccone has pled guilty to showing obscene or pornographic images to a minor employee, and these acts occurred on the premises while hewas Respondent's sole shareholder and officer. Also, while Daniel Saccone was solely responsible for the corporation, his employee engaged in a criminal attempt on the premises. \\'hile neither man has not been convicted, the evidence inthis case demonstrates that the acts did occur. Daniel Sacocne showed images to the minor employee that appealed to prurient interests, were patently offensive to prevailing standards in the adult community as a whole with respect to what is suitable for minors, and were ut1erly without redeeming social value for minors. Mr. Cody pled guilty to criminal attempt, i.e., he admitted he had the specific intent to commit an offense and did an act amounting to more than mere preparation for it. The acts Mr. Saccone and Mr. Cody committed offend the public sense of decency and morals. Thus, Respondent's renewal application shouldbe denied, pursuant to Code (b)(7) and 61.7l(a)(ll). Even though Daniel Saccone is now a minority stockholder, or director, he is responsible for running the business, and Mr. Cody is responsible for managing one ofthe restaurants. In the ALJ's opinion, the change in corporate structure should have no bearing on this case for three reasons. First, Daniel Saccone committed the act while he was responsible for the corporation. Second, the changes in stock ownership have not changed the fact that Mr. Saccone continues to run the day-to-day operations. Finally, both Daniel Saccone and Mr. Cody hold positions of 6 16 TEX. ADMIN. CODE 33.1.

7 SOAR DOCKET NO PROPOSAL FOR DECISIO?Ii PAGE7 responsibility for the permittee. These facts support the conclusion that Respondent should be held responsible for what occurred in 2002 on the premises. III. ALLEGATIONS REGARDING SUBTERFUGE The legislature has charged the Commission with the duty of preventing subterfuge ownership,' and Staff alleged that Respondent's change in corporate structure was intended to mislead the Commissionabout the true nature ofcorporate operations. Phillip Saccone and Daniel Saccone testified that Phillip contributed $150,000 when the corporation was established and held a security interest on the corporate stock for that amount. Daniel Saccone did not disclose this fact on the TABC applications. However, the primary issue in this case was not whether Daniel had failed to disclose Phillip's involvement: rather, it was whetherthe corporate change was an attempt to conceal Daniel's involvement after he was placed on community supervision. Daniel Saccone testified repeatedly that he ran the business and described his responsibilities in some detail. Basedonthis testimony, the ALJ finds that neither Daniel Saccone nor his father attempted to hide the fact that Daniel is the ptimary operator ofthe Respondent's business. IV. STAFF'S REQlJESTS FOR DOCUMENTS Staff alleged that Respondent refused to respond or only partially responded to the Commission's lawful requests for documents, sent May 25, June 12, June 30, and July 27,2006. The Commission may require the filing of reports and other data by persons engaged in the alcoholic beverage business which the Commission finds necessary to accomplish the purposes ofthe Code 8 8 Code Code 5.32.

8 SOAH DOCKET NO PROPOSAL FOR DECISION PAGES Staff members Del Drake. TABCs Director of Professional Responsibility. and Gary Cutler. investigator and certified peace office, testified about their interactions with Daniel Saccone and Phillip Saccone in which they attempted to facilitate the document production process. Respondent provided some ofthe requested documents but did not provide all ofthem until the hearing commenced. Respondent said it did not receive one request and could not provide all ofthe bank records and utility bills requested without expending large sums for copying charges. Based on Respondent's incomplete response to the request for documents until the day of the hearing, the ALJ finds that Respondent did not timely respond to the requests. However, the ALJ recommends no additional sanction for this violation because ofthe recommendation to not renew the permits. In the ALJ's opinion, that sanction is comprehensive enough to address any Code violations in this case. V. FINDINGS OF FACT Background Danmarko, Inc., (Respondent) was incorporated in Daniel Saccone was issued 10,000 shares of common stock and named as the sole shareholder and officer. On December 12, 2000, Respondent filed an original application for a beer and wine permit for its location at Research Boulevard B 1, Austin, Williamson County, Texas. On December 29, 2000, TABC issued Permit No. BG to Respondent for the Austin location. On Febmary 2 L 2003, Daniel Saccone filed an original application for a beer and wine permit for Respondent's location at 2701 Highway 183 South, Suite A, Leander, Texas. Daniel Saccone listed himself as the sole shareholder and officer.

9 SOAR DOCKET KO PROPOSAL FOR DECISION PAGE9 On February 28, 2003, TABC issued Permit No. BG to Respondent for the Leander location. OnFebruary 28, 2005, Daniel Saccone filed a renewal application for the Leander location in which he acknowledged his deferred adjudication. On March 29, 2005, and February 8, 2006, Phillip Saccone and Daniel Saccone filed renewal applications for the Leander locationand indicated a change in corporate structure. Further, Phillip Saccone listed his total personal investment in Respondent as $150,000. Violations Regarding Public Decency On December 6, 2004, the Assistant District Attorney for Williamson County, filed an information changingthatdefendant "intentionaliy andknowingly hired, employedorused a minor, namely T.B., to exhibit harmful material, namely pornography. to a minor, knowing that the material was harmful and knmving I.B. was a minor'' On December 4, 2005, Daniel Saccone pled guilty in the 26'h District Court, Williamson County. to Display of Hannful Material to a Minor, a third-degree felony committed on the licensed premises on July 27, 2002, and described in TEX. PEo.;AL CODE A?-<N (b)(3). On January 13, 2005, after accepting Daniel Saccone's guilty plea, the court deferred further proceedings without an adjudication of guilt, placed Mr. Saccone on community supervision for five years, and ordered him to pay a $5,000 fine and perform 350 hours of com1nunity service. On May 11, 2005, Michael Cody, who was a manager at Respondent's Research Boulevard location, was charged with the same crime as that to which Mr. Saccone pled guilty. On June 23, 2005, in the 26'h District Court, Williamson County, Mr. Cody pled guilty to the lesser offense of committing a criminal attempt on the licensed premises on July 3, The crime to which Mr. Cody pled guilty is a state jail felony, described in TEX. PE'IAL CODE A>;N Based upon Mr. Cody's plea, the court deferred further proceedings without an adjudication of guilt and placed Mr. Cody on community supervision for three years and ordered him to pay a $2,000 fine and perform 350 hours of community service. Michael Cody cunently manages Respondent's restaurant at Research Boulevard and sometimes works at the Round Rock location.

10 SOAR DOCKET "\ PROPOSAL FOR DECISIO:"i PAGE On May L 2005, Daniel Saccone gifted 5,100 shares ofrespondent's stock to his father, Phillip Saccone, and Daniel Saccone retained the remaining 4,900 shares. Daniel Saccone resigned as director and officer ofrespondent, and Phillip Saccone became the president, secretary, and sole director ofthe company. In December 2005, Daniel Saccone and Phillip Saccone went to one oftabc's locations and explained the change in corporate structure to Staff. 17. Respondent employs Daniel Saccone to run Respondent's day-to-day operations. Request for Information 18. On May 25, June 12, June 30, and July 27, 2006, the Commission's Staff requested documents from Respondent, pursuant to Code Respondent provided some of the requested documents but did not provide all of them until the hearing commenced. 20. Respondent did not timely respond to the Staffs requests for information. Procedural History and Notice By letter dated April28, 2005, Staff notified Respondent that it protested its application for the renewal ofpermit BG for its Leander location. A notice of hearing was sent to Respondent on August 21, 2006, and included the time, date, place, and nature ofthe hearing; the legal authority and jurisdiction under which the hearing was to be held; the particular sections of the statutes and rules involved; and a short, plain statement ofthe matters asserted. The hearing was held at the State Office of Administrative Hearings, 300 W. Fifteenth Street, Austin, Texas, on October 16, 2006, and continued on November 13, Both parties appeared at the hearing. VI. CONCLUSIONS OF LAW The Texas Alcoholic Beverage Commission has jurisdiction over this case. TEX. ALCO. BEV. CODE ANN. (Code) 5.31, 5.33, 5.35, and The State Office of Administrative Hearings has jurisdiction over matters related to the hearing in this proceeding, including the authority to issue a proposal for decision with proposed findings of fact and conclusions of law. Code 5.43 and TEX. Gov'T CODE ANN l(b) and (5).

11 SOAH DOCKET >;O PROPOSAL FOR DECISIO>; PAGE 11 Proper and timely notice ofthe hearing \Vas provided as required in accordance with the Administrative Procedure Act, TEX. GOV'T CODE ANN and Respondent permitted a person on the licensed premises to engage in conduct which is offensive to public decency, in violation of Code 61.7l(a)(ll). The place or marmer in whichrespondent conducted its business warrants the cancellation or suspension ofrespondent's permits based onthe general welfare, health, peace, morals, and safety of the people and on the public sense of decency, pursuant to Code 11.6l(b)(7). Respondent failed to timely respond to Staffs requests for information. in violation of Code Based on the Findings offact and Conclusions oflaw, Respondent's permits should not be renewed. SIGNED January 30, ,">...-;) c6~'--' /CJ _(._..k~ SARAH G. RAMOS ADMINISTRATIVE LAW JUDGE STATE OFF1CE OF ADMINISTRATIVE HEARINGS